Wholesaling HUD Homes

[Jessica Martin]

Hi,

Ive been looking into all different ways and options to get into Real Estate from REO's, to short sales, and so on and now I've come across HUD homes and so far it's sounding pretty good, but Im new at this, so I want to run a few questions past you guys and gals. So first off, being a previous FHA loaned home, I shouldnt have to worry to much about major surprises like other homes, right? I mean, from what I've heard, FHA is pretty strict on major things not being an issue with a home they finance... So Im thinking that sounds like a relief to not have to stress that my contractor will uncover a costly issue when Im just getting into this business and every $ counts... From the information I just got off of another webinar, as long as you buy the home from HUD and they are aware you are an investor, there are no resale time limitations on thee homes? The webinar also stated that if you win a bid, you have so many days to turn in the paperwork to get the deal done, so in that time, he looks for his end buyer, and if he doesn't find one, then he doesn't submit the paperwork and the deal is off, no penalty... ? This is all sounding to good to be true? What am I missing? What are the negatives?

But really, how does this process all work...(Assuming this info was all true)

I bid. If my bid wins, HUD sends me paperwork. Before that paperwork deadline is reached, I am finding an end buyer. I then submit the paperwork. Take out transactional funding? Do a double close with my end buyer and walk away with my money?

The thing Im having the hardest time understanding is earnest money deposits... If I put up $ for a deposit for my contract, take out transactional funding to purchase the home, and my end buyer backs out, what do you do??? Or is there something he signs so that he can't? How does that part work? 

[Greg H.]

@Jessica Martin @Robert Leonard @Daniel Hedges 

I am a broker but I primarily flip homes and most of them are HUDs.  I have closed on approx. 40 this year to date and several hundred over the last 25 years

1. There are 3 Asset managers in the Denver Region which is most of the Southwest US.  Matt Martin, Hometelos and Pemco.  The contract process is fairly similar between all of them but they do evaluate properties with 60+ days on the market differently

2. HUD no longer pays any closing costs and you select the title company. You can add up to 3% to your bid for closing costs to be paid but that makes no sense on a wholesale deal. I pay approx. $500 to close with a title company(Excel Title Group) that can do the entire state and was one of the HUD closing companies before the new system. HUD is a pain in the butt for title companies so I prefer to use someone who has experience with them. I typically do not buy title insurance unless I perceive a problem and the cost for title insurance is the same everywhere in Texas

3. Wholesaling- As others have mentioned, you can avoid a double close by adding a person to the contract or by selling the LLC. Both of these require a great deal of trust between the parties and personally I wouldn't feel comfortable on the buy side as there are some risks. I have the ability to close and I do wholesale some but I just close and then resell.

4. HUD does not do any work or repairs to their inventory. If the roof leaks they may put a tarp on it or rig a door jam if it has been kicked in. If you look at hudhomestore.com the do have a PCR report with some info on the condition of the property. You have to take it for what its worth. For instance, the A/C inop, could be anything from a bad coil to a $15 contactor. I do not hire professional inspectors for the ones I buy as I have 25+ years of experience in doing this and I only buy at my price factoring in the what ifs. Inspecting a HUD could costs you $500 or more in addition to the cost of your inspector do to utility connection fees and re-winterizing fee

5. There is no penalty for no turning in the contract within the 48 hours and I have had no issues with asking for an additional 24 hours. Once the contract is accepted by HUD you have either 30 or 45 days to close and Investors will not recive their earnest money back if they fail to close barring excessive damage to the property after the contract was accepted or title issues. I look at the $500 or $1000 earnest money as the price I pay for 30-45 days to further evaluate the property. I have no problem walking away from the earnest money if the numbers do not work. Its just a cost of doing business